The "Magnificent Seven" stocks get a lot of attention, and for good reason. These seven stocks, which include Amazon, Alphabet, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, have demonstrated their value over time, with incredible businesses and high stock gains.
They collectively account for about $13 trillion in market cap, with all having trillion-dollar status except for Tesla. They still control their industries and have much to offer investors, but you might want to consider younger, smaller, and faster-growing companies that could outperform these Magnificent Seven stocks during the next few years. I recommend taking a look at Nu Holdings (NU 1.66%) and SoFi Technologies (SOFI 3.69%).
1. Nu: A better way to bank in Brazil
Nu is an all-digital bank based in Brazil, but also operating in Mexico and Colombia. It's been reporting high growth consistently every quarter, and it's now also reported six consecutive quarters of positive net income based on generally accepted accounting principles (GAAP).
Revenue increased 57% year over year in the 2023 fourth quarter, and that's coming from two places: new accounts and cross-selling products. Both of these are important elements of Nu's growth strategy.
Nu added 4.8 million new customers in the fourth quarter and now has 53% of Brazil's adults as customers. There's still close to another half before it reaches saturation, but it has the newer markets of Mexico and Colombia, where it's still a small player, to drive further customer additions.
There's also lots of opportunity in converting customers into multiproduct users. Average revenue per active customer (ARPAC) is a major growth metric for Nu, and it increased from $8.20 last year to $10.60 this year in the fourth quarter. Nu is growing in popularity among a more affluent class of consumers, and that should lead to continued increases in ARPAC. These are also highly engaged users, with 83% of them using a Nu product within the past 30 days.
Nu's credit business is equally robust. Deposits increased 38% over last year, and total receivables from personal loans and credit cards increased 49%. The interest-earning portfolio increased 91%. The risk-adjusted net interest margin widened to a record 10.2%.
Nu shares are up almost 160% during the past year, and this Warren Buffett-owned stock could become one of the best bank stocks to own over the next few years.
2. SoFi: The digital answer to U.S. banking
SoFi isn't very different from Nu, but it operates in the U.S. and targets students and young professionals. It has been demonstrating rapid growth, and it's newly profitable. Revenue increased 35% year over year in the 2023 fourth quarter, and SoFi reported its first GAAP profit of $48 million and $0.02 in earnings per share (EPS). Management expects positive net income in the 2024 first quarter and the full year.
It began as a lender, and the lending segment remains an important part of the whole. But it has decreased as a share, making way for the other segments to contribute to a well-diversified business.
Lending revenue accounted for about half of the total in the fourth quarter, and net interest income increased 79% over last year, driven by margin expansion and higher loan balances. All three lending categories -- personal, student, and even home loans -- increased over last year. SoFi is well-positioned to expand the lending business more if interest rates comes down as expected and demand for credit rebounds.
SoFi now offers bank accounts after acquiring Golden Pacific Bancorp in 2022, as well as credit cards, investing products, and other financial services. This strategy of hooking in customers with low-fee products and then upselling and cross-selling more products is helping SoFi become a high-growth financial powerhouse. SoFi added 585,000 new accounts in the fourth quarter and almost 700,000 new products.
Deposits increased 19% in the fourth quarter from a year earlier, with 90% coming from direct deposit. This leads to high cross-product activity in lending and other financial services. That also leads to lower cost of funding to make loans.
SoFi continues to capture market share and increase its relevance to today's banking customers -- and tomorrow's. After more than doubling last year, SoFi stock is down about 25% so far this year. This is an investing opportunity that you don't want to miss.
